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Tuesday, 5 August 2014

RBI keeps key rates unchanged, SLR cut by 50 bps

The Reserve Bank of India kept key rates unchanged in its policy review meet today, but cut the SLR by 50 bps to 22%.

The repo rate stands unchanged at 8% and CRR at 4%. This is the second consecutive time that the rates have been left unchanged due to stubborn inflation.

RBI also cut the ceiling on debt that must be held-to-maturity by half a percentage point to 24%.

Warning about inflation, RBI in a statement said, "With some continuing uncertainty about the path of the monsoon, it would be premature to conclude that future food inflation, and its spill-over to broader inflation, can be discounted."

The central bank said it would contain retail inflation, as measured by the Consumer Price Index (CPI), below 8% mark in early 2015, in line with the Urjit Patel committee suggestions, and 6% by early 2016.

The broad expectation was that the RBI will keep the repo rate (at which it lends to banks) unchanged at 8%. This is despite a lower print for the Consumer Price Index (CPI)-based inflation for June. The latter rose 7.31% from a year earlier in June, compared with a rise of 8.28% in May. While this was under RBI's January-end projection of 8%, it was still above its comfort level.